Market Summary: Fri. May 16, 2008

Commodities were off and running thanks to weakness in the U.S. Dollar. Crude oil hit another record near $128 per barrel after Goldman Sachs said the average price for a barrel of crude oil in the second half of the year will average $141. Goldman’s previous target was $101. Also, President Bush traveled to Saudi Arabia to ask for an increase in oil production to ease prices, but his request was denied.

Oil will remain at these elevated levels for three reasons: First, the earthquake in China destroyed some oil fields so supply will be slightly constrained and the rebuilding process will also increase Chinese energy demand. Second, geo-political conflict/pipeline explosions in Nigeria have slowed production significantly. Finally, long-dated futures contracts are now trading at similar prices as the front-month contracts. That is, the front-month contract (June 2008) closed the day at $126.29 while the long-dated contract for June 2012 closed at $124.08. In Wall Street gibberish, the spreads have narrowed. About two months ago, this “oil curve” was downward sloping as traders anticipated prices to be lower in the future, but this is not the case anymore.

Housing data also dragged the markets lower. Constructions starts for single family homes for April hit an annualized rate of 692,000 which is the lowest level since January 1991. However, total housing starts and building permits increased from the previous month’s levels.

Financial stocks were the main laggards on the day because of downgrades at two regional banks, KeyCorp and Regions Financial. Merrill Lynch downgraded these two stocks to “sell” from “neutral.”

The Consumer Confidence Index for May was 59.5 – the lowest level in 26 years. Last month’s reading was 62.6 (Source: Briefing.com).

Apple announced it will begin selling iPhones in the Middle East, Africa, and other European countries (Source: Briefing.com).

DJIA 12,986.80 -5.86 (-0.05%)
Nasdaq 2,528.85 -4.88 (-0.19%)
S&P 500 1,425.35 +1.78 (+0.13%)
NYSE Volume 3,817,609,000

2-Yr Bond 2.47% +0.02
10-Yr Bond 3.85% +0.02
30-Yr Bond 4.58% +0.02

Dollar Index 72.844 -0.506
Crude Oil (June) 126.29 +2.17
Nat Gas (June) 11.094 -0.305
Gold (June) 899.90 +19.90